Public Bill Committee

[Sir Nicholas Winterton in the Chair]

(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new Clauses amending section 74 of the Finance Act 2003) - Clause 154

Power to give statutory effect to concessions

Question proposed [this day], That the clause stand part of the Bill.

Question again proposed.

Nicholas Winterton: I am delighted to be back in the Chair. I am sorry that I could not be with you this morning. I was attending a thanksgiving service for the late right hon. Lord Pym, who had been a Conservative Government Chief Whip, Foreign Secretary, Secretary of State for Northern Ireland and Secretary of State for Defence. If you can have a thanksgiving service that is enjoyable, it was indeed enjoyable.
I regret to say I have been advised that somewhat slow progress was made this morning. I am not looking at either party when I say that, because clearly debate and discussion is important, but I have a feeling—I hope—that some progress will be made this afternoon. We were dealing with clause 154 stand part, and I believe that the spokesman for Her Majesty’s Opposition was on his feet, and I ask him to rise again and to be succinct in his comments to the Committee. I call Mr. Philip Holland.

Philip Hammond: Hammond. We have been colleagues for only 11 years, Sir Nicholas. I think that I can assure you that progress will be made this afternoon, as you require. I am trying very hard not to take the situation before the start of the sitting regarding the quorum as being any reflection on the gravity of the matters we are discussing.
This morning, I was asking the Minister whether the provision was designed to deal with all extra-statutory concessions—in other words, the ending of the extra-statutory concession regime—or whether it was designed to deal only with those extra-statutory concessions that fall foul of the Wilkinson judgment. No doubt the Minister will explain precisely the circumstances in which it will be used in due course. I was making the point that the definition of an existing HMRC concession under the clause is
“a statement made by the Commissioners...and having effect at that time, that they would treat persons as if they were entitled to...a reduction”.
The essence of the Wilkinson judgment is that some of these statements clearly were ultra vires, and I am asking whether extra-statutory concessions that have operated, but have now been demonstrated to have been ultra vires from the beginning, can be the subject of the powers in this clause to turn them into statutory concessions. Following that thought process, why it was not decided to use primary legislation—perhaps a clause in the Bill—to legislate on the extra-statutory concessions that are in use, but that are thought perhaps to fall foul of the Wilkinson judgment, in a way that would be rather more transparent than this order-making power. Why cannot we just have a clause in the Bill that lists the various provisions so that we make proper primary legislation to give effect to them? Could it be that Ministers fear attempts to amend them, given that the orders will clearly not be amendable? Will the Minister clarify the process that is being used?
Are there any circumstances in which the fact that an extra-statutory concession has been unlawful—that it was operated ultra vires—could give rise to a demand on a taxpayer? I do not claim to be an expert on tax law, but I have at the back of my mind the case of a well-known proprietor of a famous grocery store in which the courts held that an arrangement that the Revenue had made with regard to the tax payable was unlawful and ordered that the Revenue essentially negate the arrangement.
I wonder whether the process of identifying extra-statutory concessions as possibly being without foundation in law until such time as the processes set out in the clause are used to determine statutory concessions could give rise to a taxpayer finding the concession effectively withdrawn retrospectively because it had never been lawful, with an additional liability thus arising on the taxpayer. If the Minister is able to confirm that there will be no such circumstances, that would reassure a great many people who have benefited from extra-statutory concessions.

John Penrose: If the Minister is not able to give that reassurance, perhaps she will indicate that if she does discover any circumstances of this kind, she will extend a retrospective amnesty to anybody affected so that they are not required to come up with a retrospective payment.

Philip Hammond: I like to push the envelope, but I suspect that asking Ministers to grant retrospective amnesties might be pushing the envelope a bit too far. I am sure that everyone on the Committee is anxious to hear the Minister’s response.
Will the Minister clarify something about the way in which the clause will be operated that is not clear from reading the Bill or the explanatory notes? Is this a one-off provision to deal with the stock of unlawful ESCs?
The Financial Secretary to the Treasury (Jane Kennedy)indicated assent.

Philip Hammond: The Minister nods, which implies that that is the case. Can we therefore take it as read that once the backlog is cleared, there will be no use of a procedure whereby something is delivered as an extra-statutory concession and then formalised into a statutory concession through the processes set out in clause 154? Is this exercise a one-off clearing of the backlog?
Will the Minister tell us about the consultation process? Presumably there will be consultation over the ESCs that are proposed to be enshrined in statute. The clause gives a power to introduce them in a form that is amended as HMRC thinks fit. This is not simply a question of the industry and Parliament rubber-stamping existing concessions. There is clearly an opportunity for HMRC to tweak the concessions that have operated and to enshrine them in statute in a slightly different form. I understand that it is intended that there will be consultation with tax professionals on any proposed orders to be made under this clause. Will the Minister give a sense of the time scale and the period of consultation that would be allowed?
There will be some important issues to consider because, almost by definition, an extra-statutory concession is more flexible than a piece of statute. If these rules from the Revenue practice manual, as operated without statutory basis, are to be enshrined in statute, they will have to be defined, perhaps in a language and in a way that is more formal and prescriptive than the manual requires. Therefore, when the drafts are published, there will be issues at the margin about the extent to which the concession is being extended, or the scope to which it is being reduced. There will be considerable desire within the profession for an opportunity to study and comment on them.
The Minister has indicated that she will be able to say something about the number of extra-statutory concessions and the timetable for reviewing them. That will give the Committee a sense of the operation’s scale. Will she tell us how many of them are expected to be enacted into statute through the use of this clause?

Nicholas Winterton: Before I call the Financial Secretary, I apologise profusely and personally—yet again—to the hon. Member for Runnymede and Weybridge for my error in respect of his surname. I give a commitment that I shall do my best not to make the mistake again during this Public Bill Committee.

Jane Kennedy: It is a pleasure to be under your chairmanship this afternoon, Sir Nicholas, and I look forward to scampering through the clauses with you. You should not apologise too profusely; it keeps the hon. Member for Runnymede and Weybridge humble if he has to respond to other names occasionally.
The hon. Gentleman’s description of the clause was absolutely right. A decision of the courts in the Wilkinson case made clear that the scope of HMRC’s administrative discretion was somewhat narrower than had previously been supposed. That decision triggered the review of the extra-statutory concessions that have been a feature of the tax system for decades. In the course of the review, HMRC has identified approaching 500 extra-statutory concessions, the vast majority of which, I am advised, are within discretion, as the law defines them, and which the Wilkinson court case allowed. They are perfectly okay. They will continue and do not need the clause we are discussing.
This clause enables us, in a relatively short period of time, to come forward with the remaining extra-statutory concessions that can be brought back within the law using this procedure, but it is possible that we will not be able to bring a small number of extra-statutory concessions that remain on to a statutory footing. We need to consider what we will do in the event of those concessions being considered to be valuable and of benefit to the taxpayer and to the Government.

Philip Hammond: Will the Minister tell the Committee the status regarding current practice for the small number to which she referred? What is the message to taxpayers who are benefiting from them at the present time?

Jane Kennedy: I hope that you will allow me, Sir Nicholas, to ask—forgive me for doing so—for support for this clause without being drawn too far into the detail because the review is ongoing. I will want to think very carefully about some of these concessions and the way in which we respond, particularly regarding those that appear difficult to fix, in the sense of putting them on a statutory footing. Some concessions will be widely supported among the public, and we will need to think about how we respond to the effect of the court judgment. There are about 20 or so for which that might be the case, and there are tens of others that we think need to be brought back on to a statutory basis as a result of this clause.

Philip Hammond: I understand that a review is in progress, but it is clearly important for taxpayers to know whether they can rely on an extra-statutory concession on which they have been advised in the past. It would have been very easy for the Financial Secretary to say, “I assure taxpayers that they will be safe; they have nothing to worry about.” However, she did not say that, so I wonder whether we should read anything into that.

Jane Kennedy: I was going to come to that point. The concessions that have already been given will stand. No tax decision that has already been taken is affected by this, but going forward, we need to put on a statutory basis those concessions that need to be put on to a statutory basis, and we will then need to consider what we do about the others. The normal concessions that HMRC can make—this has been clarified by the court case—are very small in monetary terms, but they might be of significance to the individual. For example, HMRC would normally not be expected to pursue £100 of tax if gathering the revenue was going to cost £200. It is perfectly lawful for HMRC to make those sorts of concessions. We will need to consider how we deal with others that have become the practice and for which I think there may be public support.

Philip Hammond: I think that the Minister is telling the Committee that, regarding those familiar concessions that might fall foul of the Wilkinson judgment, the message to taxpayers is that they will not lose out as a result of this obscure process. Nobody is going to find that they suddenly have a tax bill when they thought that they had a concession. If the Minister can confirm that, that would be very helpful, but can she explain to me—I am sorry, but I am not a lawyer—how, if a court has effectively struck down HMRC’s practice and found that unlawful, HMRC is able to carry on operating these extra statutory concessions in the meantime, given that I gather that the judgment was made some time ago? On what basis can that happen?

Jane Kennedy: The hon. Gentleman makes several points. First, there will be no retrospective element regarding the decisions around Wilkinson and their effect. Secondly, he should never apologise for not being a lawyer.
Thirdly, in response to a serious point that the hon. Gentleman makes, HMRC has been working since the court case to identify the extra-statutory concessions and to then analyse which are within the law and which are ultra vires. That work is ongoing. Although I take the point that the hon. Gentleman makes, HMRC has taken this opportunity to bring forward a piece of amending legislation that will allow it not to have to wait until the next Finance Bill to introduce a change that will help people who rely on concessions regarding the concessions that can be brought on to a statutory basis.
The hon. Gentleman said that such a statutory instrument would be unamendable. We have this discussion about statutory instruments regularly, but I think that it would be an inefficient and wasteful use of parliamentary time to enact individual concessions in primary legislation merely to formalise existing and often long-standing tax treatments. The enabling power will allow only concessions that are already part of the fabric of the tax regime to be put on a statutory footing by the Treasury, so it would not be appropriate for them to be amendable anyway.

Philip Hammond: I think that the Minister’s colleague, the hon. Member for Islington, South and Finsbury, might have something to say about the Minister’s comments about lawyers in due course.
Is the Minister saying that when the powers in clause 154 are used, the effect will be to treat the extra-statutory concession as having always been a statutory arrangement? In other words, is the legal effect of the clause retrospective? Does it provide legal underpinning to the terms of the extra-statutory concession? I have to confess that, in practical terms, I like what the Minister is saying. She is, I think, telling us that no taxpayer will suffer retrospectively and that no one will find out that their extra-statutory concession for last year has been withdrawn because it was never valid. Although I am glad that that will be the effect, I do not understand the mechanism for achieving that. Ministers cannot wish away the fact that HMRC has been acting unlawfully. They either have to make HMRC’s actions retrospectively lawful, or they have to find another way of underpinning the concessions.

Jane Kennedy: I absolutely hear what the hon. Gentleman is saying and, intuitively, I think he is right. However, my advice is that the court decision does not strike down the concessions. A concession exists until the legislation takes over but because that seems so counter-intuitive to me, too, I would like to examine that in more detail and write to him with an absolute answer, for the avoidance of all doubt, about exactly what the legal position is and has been since the court made its decision.

Philip Hammond: I am somewhat reassured that Ministers are as confused as we are about exactly what is going on here. I think that we share an objective. These extra-statutory concessions are useful. They are a part of the furniture. The most important thing about them is that they work in practice. I entirely accept her point that the great majority of them will continue to operate as extra-statutory concessions. Will she undertake to write to members of the Committee in due course? This might not be until the review is completed, but we need to understand which of the concessions are not lawful, which ones in that group will be dealt with immediately by clause 154, and how the effective underpinning of their status—their operation over the period between the judgment and the new legislation coming into force—will be provided. Which of them are not going to be enshrined in statute, perhaps because although they are nice to operate as extra-statutory concessions, they would not be appropriate to operate as statutory provisions? How are we going to deal with the situation that arises in that case?
I do not think there are any huge political axes to grind. We are discussing the administration of the tax system, but I have no idea how many individuals receive each of these extra-statutory concessions. If any of the concessions are widely used, leaving aside the question of retrospectivity, the arrangements and plans for the future of a significant number of taxpayers could be thrown into doubt. If the Minister would write to members of the Committee before Report, it would give us an opportunity to come back to this, should we need to do so.

Jane Kennedy: I will, of course, undertake to write before Report, and although I will not be able to give details, I can certainly clarify whether HMRC can withdraw an unlawful concession. I understand that HMRC must give notice before any concession can be withdrawn.

Question put and agreed to.

Clause 154 ordered to stand part of the Bill.

Clause 155

Fuel duty: definition of “ultra low sulphur diesel”

Question proposed, That the clause stand part of the Bill.

Justine Greening: It is a pleasure to see you back in the Chair after our lunchtime break, Sir Nicholas.
We should pause and read this important clause carefully. The Treasury’s explanatory notes tell us that the clause is intended to help oil companies to ensure the supply of sulphur-free diesel—an important fuel in helping to improve vehicle emissions. When that is combined with ultra low sulphur diesel, the duty rates paid at the moment, which are in line with those for heavy oil, are unfair. There should thus be amendment so that combining sulphur-free diesel and ultra low sulphur diesel does not lead to rates of duty than are higher than they should be.
It might be helpful to put the clause in a wider context. The Department for Transport brought forward statutory instrument 2007/1608, which said that oil companies had to supply sulphur-free diesel to garages that sell more than 3 million litres a year, and ultra low sulphur diesel to garages selling less than 3 million litres a year, with effect from 4 December 2007. I understand that this was part of a broader attempt to help to move the industry towards the UK and European Union deadline of petrol and diesel at all garages being sulphur-free by 1 January 2009. However, there is an anomaly regarding ultra low sulphur diesel and sulphur-free diesel because, for various reasons, oil companies sometimes have to combine the two fuels. Rather than continuing to pay a duty in line with that for ultra low sulphur diesel, or for sulphur-free diesel, duty is charged at the rate for heavy oil—regular diesel—because the mixed fuel does not meet either definition of the two diesels.
Clause 155 amends the definition of what constitutes ultra low sulphur diesel by removing density and distillation requirements for the mixture to qualify as ultra low sulphur diesel, which means that the correct rate can be charged, rather than the rate for heavy oil. We do not necessarily oppose this attempt to correct an apparent unfairness in the duty rates, but I want to clarify a couple of points.
First, the clause provides that the provision is treated as having come into force on 4 September 2007. I want to check that, because statutory instrument 2007/1608 introduced a requirement to supply sulphur-free diesel to garage forecourts with effect from 4 December 2007, as was confirmed in a written ministerial statement on 26 July. The key date thus seems to be 4 December 2007.
I challenge that, because the background note to the clause in the explanatory notes states:
“The Government introduced a measure requiring oil suppliers to supply sulphur-free diesel...to garage forecourts from 4 September.”
However, the ministerial statement said that the requirement would come into force on 4 December. Will the Minister clear up the confusion about which date should be included in the clause? Should it be 4 December, which was when the SI came into force, or should it be 4 September, the date in the Bill? It is not clear why there should be a three-month difference.
It is a somewhat retrospective move to allow oil companies to get a rebate for oils that they have mixed in the past. Will the Minister tell us what calculations the Treasury has made about the revenue impact of clause 155 and the fact that oil companies will now be able to get a rebate for those blended fuel mixes for which they have paid at the standard rate rather than the reduced rate? The latest HMRC statistics show that about 12 million litres of sulphur-free diesel was released for consumption in 2006-07. What is the Treasury’s assessment of the amount of diesel that was blended that would qualify for that retrospective rebate?
We understand why the Government want to clear up what could be called an unfairness in the way in which the oils duty has worked for oil companies, but what about those who buy the fuel? With road tax, they are hit by retrospective tax rises that they cannot undo or avoid, yet the Government seem happy to tackle retrospectivity for oil companies. We do not disagree with the measure, but I take this opportunity to urge the Minister to consider the unfairness of retrospectivity in other areas of motoring, such as vehicle excise duty.
I shall make one more brief point. On broader issues, such as on vehicle excise duty, I am still waiting for answers to parliamentary questions that were due to be answered by 8 May. That was well over a month ago. I would appreciate it if the Minister would finally provide me with answers to those important questions, alongside her response to the issues that I have raised about the clause.

Nick Palmer: This clause, unlike some of the more abstruse ones, deals with an issue that we often get correspondence about. I would like to ask the Exchequer Secretary whether the difference in the price of diesel—there is no difference for unleaded petrol—between Britain and the continent reflects the standards of sulphur reduction in Britain, or whether other factors are involved, and whether that has influenced the setting of the duty.

Peter Bone: I have probably got this wrong, but if the forecourt sells the diesel at a higher price because it expects to pay duty at a higher level and is therefore passing that on to the customers, that duty should go to the Treasury and the company should not get a rebate. I am not entirely sure that that has happened, but if it has it seems wrong that the Treasury is giving effectively a profit to the oil company.
Sir Peter Viggers (Gosport) (Con) rose—

Nicholas Winterton: Before I call Peter Viggers, perhaps it would be appropriate to congratulate him on the award of a knighthood in the Queen’s birthday honours list. It is richly deserved and we all congratulate him.

Peter Viggers: Thank you, Sir Nicholas. Praise from you is praise indeed.
When the Exchequer Secretary responds, she owes us another sentence or so of explanation. The explanatory note on the clause uses the passive, which is always used when someone is trying to obscure an issue. It says:
“The Government introduced a measure requiring oil suppliers to supply sulphur-free diesel (SFD) to garage forecourts from 4 September 2007. It was recognised that occasions might arise when SFD and ULSD need to be mixed to guarantee the supply.”
It was recognised by whom, and when? We would like to know the chronology, because a mistake has been made. There has been a failure to realise the full implications of mixing the two kinds of diesel. I do not fully understand that note, and I hope that the Exchequer Secretary will be able to make it clear.

Angela Eagle: I hope that I can clear up the confusion, which has grown as the debate has progressed. This is a modest technical issue, which should not worry people too much. I will explain how it came about.
Clause 155 amends the definition of ultra low sulphur diesel with retrospective effect from 4 September 2007. The hon. Member for Putney is right about the wider issue of the Department for Transport issuing regulations for the provision of sulphur-free diesel. That is a good thing—let us get that on the record. Moving from ultra low sulphur to sulphur-free diesel is of benefit to air quality and lowers emissions. We all ought to recognise that that is progress. The Department for Transport made that mandatory from 4 December, and set the duty rate at the same level as for ultra low sulphur diesel, namely 50.35p per litre.
As the hon. Lady hinted, there is a higher duty rate for heavy oil of 56.94p per litre. Due to the distribution mechanisms, which get the different forms of oil and petrol mixed and then out to distribution centres and thenceforth on to the forecourts, there was an issue with the changeover period and with the run-in to sulphur-free diesel supply becoming mandatory. The problem that it caused was that under existing legislation, although sulphur-free diesel and ultra low sulphur diesel have the same duty rate, mixtures of the two did not meet either of the definitions in place from earlier times, and the law said that an oil that did not meet those definitions would automatically qualify for the higher rate.
Members of the industry suggested that there were practical problems in the transition from the old duty rate to the new mandatory regime with sulphur-free diesel and that, as a result of how the pipes and distribution systems work, if they happened to mix ultra low sulphur diesel and sulphur-free diesel in order to get supplies to the pumps in an appropriate way, the resulting oil, which would sometimes contain a tiny residue of other oils, would not meet either definition. We therefore created a circumstance for that period. Retrospectivity applies so that they could gear up to supplying sulphur-free diesel. Retrospectively, we will not charge them the higher rate if there happen to be traces of oils from the mixing necessary for their distribution. It is all perfectly simple, as hon. Friends and Opposition Members can see.
Because the industry was moving toward supplying sulphur-free diesel in a timely fashion for the mandation on 4 December, and in order for members of the industry to get their distribution mechanisms right, we gave the industry assurance that we would not charge a higher rate of duty for three months before, as any inadvertent mixing might put industry members outwith the definitions then in law. It is a transitional measure to facilitate getting supplies of sulphur-free diesel where they needed to be in a timely fashion for the mandation to come into effect appropriately on 4 December. I see that the hon. Member for Putney is itching to get to her feet, so I will gladly give way.

Justine Greening: Can the Minister confirm that the background note to the clause is wrong when it says:
“The Government introduced a measure requiring oil suppliers to supply sulphur-free diesel (SFD) to garage forecourts from 4 September 2007”,
and that it should read “4 December 2007”? That is where the confusion on our part arose. It is different from the ministerial statement, and I think that it is wrong. Can she confirm that?

Angela Eagle: It sounds to me like it is wrong. I suspect that in the explanatory note, the two dates are simply mixed up.
I was asked about the revenue impact. It is nil. Ultra low sulphur diesel and sulphur-free diesel are charged at the same rate; it is only when they were mixed that the rate would have been higher. Mixing would not have happened if we had not given comfort that in the event of a technical breach we would not charge the higher rate, but then it would not have been guaranteed that supplies would be where they were meant to be in time for the mandation of sulphur-free diesel. It is purely a technical clause to shift from one system of defining fuel and fuel mixes to a more regulatory system under which sulphur-free diesel is mandated. It deals with the transition between the old regime and the new. I hope that hon. Members will be happy with those reassurances.
My hon. Friend the Member for Broxtowe is right to mention that fuel duty on petrol and diesel are the same. Differences in price, as I understand it, are due to bottlenecks in supply and slightly different ways of creating petrol and diesel, but I confirm that there is no tax differential between what the Government collect on petrol and what we collect on diesel. The price differences have to do purely with distillation, bottlenecks in supply, shortages of supply in the industry and so on, and have absolutely nothing to do with tax rates.
I hope that hon. Members will be happy to see clause 155 stand part of the Bill. It is wholly beneficial and will mean that there are less sulphur emissions, which we all want to see.

Question put and agreed to.

Clause 155 ordered to stand part of the Bill.

Clause 156

Duties: abolition of disregard of fractions of penny

Question proposed, That the clause stand part of the Bill.

Philip Hammond: I read the clause and thought that I understood it. I then read it again and thought that I did not, so I looked at the explanatory note, which told me absolutely nothing. To be fair, that is what most explanatory notes do. They simply repeat what a person who can read will have discovered from reading the Bill. The clause will remove section 137(4) from the Customs and Excise Management Act 1979, a provision that says:
“For the purpose of calculating any amount due from or to any person under the customs and excise Acts by way of duty, drawback, allowance, repayment or rebate any fraction of a penny in that amount shall be disregarded.”
The explanatory note says that that is redundant because the halfpenny has
“ceased to be legal tender”.
It seems to me that that would reinforce the requirement for fractions of a penny to be disregarded. As I recall, the halfpenny ceased to be legal tender about 20 years ago so it seems rather odd that we are now taking the trouble to remove a subsection from the 1979 Act.
I got to thinking about the clause and realised that there is perhaps more to it than meets the eye. Rounding down to get rid of fractions of a penny in a total amount is perfectly sensible and we all understand the reasons for it. However, for amounts per litre, kilo or gram of a dutiable payment, which will be multiplied by many thousands or millions, the case for removing, eliminating or ignoring fractions of a penny becomes rather less obvious.
I remind the Committee that we are not introducing a disregard of the fraction, but removing the provision for the disregard of the fraction. When there is a fraction of a penny per unit and the person paying may pay for many thousands or millions of units at a time, there is a potential revenue implication from this measure. If the Exchequer Secretary can explain precisely what this is all about and why it is happening now, perhaps my concerns will be shown to have been unnecessary, but perhaps not.

Nicholas Winterton: And I am interested too.

Angela Eagle: Thank you, Sir Nicholas. It would perhaps have been tidier had these changes been made in 1984 when the halfpenny ceased to be legal tender. I was not in the Government then and from a quick look around, I suspect that nobody in the room was. Sir Nicholas, you are a long-standing Member of the House and I do not know whether you served on the 1984-85 Finance Bill.

Nicholas Winterton: I am not sure.

Angela Eagle: I note that you cannot remember, Sir Nicholas. Perhaps it would have been tidier to pass this measure in 1984. We decided to do it now because we got wind recently that businesses have been looking to manipulate their duty calculation methods to reduce their duty liability. Removing the subsection may increase revenue slightly, although we do not think that it will be by very much. It ensures equity and consistency. When the measure becomes law and removes fractions, HMRC will need a common calculation method to ensure equity and consistency between all those who pay.

Philip Hammond: The Minister just made a slip of the tongue. To clarify, when she said that when the measure becomes law it will remove fractions of a penny, I think she meant that it will remove the disregard of fractions of a penny. It is the other way around.

Angela Eagle: Clearly that is what I meant to say—my apologies for getting it the wrong way around. It shows what happens when one tries to extemporise rather than read boring speeches that have been written—[Hon. Members: “Harsh.”] Clearly the issue is the need for equity and consistency and for there to be no particular advantage, even if it is of a fraction of a penny, in people arranging their affairs to lessen their liabilities, albeit slightly. It is simply a tidying-up measure. We do not expect much revenue. I suspect that it should have been done 20 years ago.

Philip Hammond: I am not sure whether the Exchequer Secretary has given way or finished—I shall go on as if she has given way.
I think that she is confirming that the rounding of fractions of the penny applies to the levyable unit of duty.
Angela Eagleindicated assent.

Philip Hammond: She is nodding her head, and the measure makes a lot more sense. I cannot understand why one would want to disregard a fraction of a penny when it may be multiplied by many thousands or millions.
Does the Exchequer Secretary agree that the explanatory note, once again, is highly misleading? If what she said is the case, the measure has absolutely nothing to do with the halfpenny ceasing to be legal tender, as the note says. It is perfectly possible—it is done in financial transactions every day—to calculate to many decimal places of a penny. It is worth doing so if one is multiplying by a big enough number. The explanatory note, which suggests that the abolition of the halfpenny is behind the measure, is simply not right, if I understand her explanation. Although there would be a necessity to disregard the halfpenny from a global duty bill of, say, Diageo plc, of £28,243,392.285, there is no reason to disregard the fraction of a penny per unit in calculations.

Nicholas Winterton: In order to help Hansard, I personally took it that the Exchequer Secretary had sat down, and that the hon. Member for Runnymede and Weybridge had another innings. Does the Minister wish to reply?
Angela Eagleindicated dissent.

Question put and agreed to.

Clause 156 ordered to stand part of the Bill.

Clause 157

National savings

Question proposed, That the clause stand part of the Bill.

Philip Hammond: I remember fondly from my childhood saving stamps, which is what this measure is about. I do not know whether you shared that experience, Sir Nicholas. When I was preparing for this debate last night, it occurred to me that I was destined to be a shadow Chief Secretary because I can remember eagerly going to the post office to buy national savings stamps for which I had saved up. If I remember correctly, we used to get them in various denominations with pictures of Prince Charles on the ninepenny and Princess Anne on the one and sixpenny coin. I might be wrong.

Mark Todd: The hon. Gentleman does not look that old.

Philip Hammond: I can assure the hon. Gentleman that I feel it.
My nostalgia is because the provision deals with the legacy of the era of savings stamps. I used to collect my saving stamps. When they had amounted to a worthwhile sum, which in those days was about £1, I would go into the post office and pay it into another defunct institution, the Post Office Savings bank, RIP.
Apparently, as national savings stamps and national savings gift certificates have been withdrawn, a relatively small sum of money—a few million pounds—remains stranded. I take it—I would be grateful for ministerial confirmation—that that sum represents money that was paid over and is represented by stamps that have effectively been lost or destroyed and will never be redeemed. The provisions give the Treasury a new power to make regulations which would require the Commissioners for the Reduction of the National Debt to transfer these monies—I think, in total, about £7 million—to the national loans fund. The explanatory note says, rather curiously:
“The tradition of using such funds to help defray the National Debt is no longer appropriate in today’s financial services environment.”
It is interesting that Parliament as a whole is dealing with the issue of dormant accounts and unclaimed assets in the dormant accounts legislation, which we still await in this House—the Minister might be able to give us some news on that. I was moved to wonder, and I was able to wonder aloud, because I found myself seated next to the chief executive of National Savings and Investments at a dinner last week—very convenient—why the unclaimed assets, or dormant accounts, as they effectively are, in National Savings and Investments are treated differently from the dormant accounts in the rest of the banking and building societies sector. As we know, the Government’s decision is that the assets that are stranded because accounts have gone dormant, people have lost their records or they have died without anybody becoming aware of it, and the money that is in those accounts will be dealt with through a statutory procedure that the Government are laying down, initially on a voluntary basis, and will be used for certain specified causes.
I am curious to know why the Government feel that money that to my mind is entirely analogous money—money that has been handed over by a saver and then, for whatever reason, not redeemed—should not be treated in the same way and be subject to the same regime that the Government have put in place for other unclaimed residual assets. Can the Minister answer that and perhaps throw some light on the progress of the Bill that is currently awaiting its Commons stages, and whether we are going to get the Bill before the summer recess? I am sure that members of the Committee, who might have the privilege of serving on the Public Bill Committee for that Bill—I know my hon. Friend the Member for Fareham is extremely interested in the issue—would find that of interest.

Nicholas Winterton: I have to say, before the Minister replies, that it may be of interest, but not to this debate. The hon. Gentleman speaking for Her Majesty’s Opposition is anticipating the Second Reading debate on another piece of legislation. I hope that the Minister will take my guidance in dealing with the matter.

Kitty Ussher: It being the first time that I have risen this afternoon, may I say what a pleasure it is to do so under your chairmanship, Sir Nicholas. May I be so bold as to speak on behalf of the entire Committee in saying that perhaps we should pass our thanks to the maintenance department for fixing the light bulb, which seems to be somewhat quieter than it was last Thursday, although I notice that one of them has expired, but at least it has done so silently.
The hon. Gentleman who speaks for the Opposition rightly described the general purpose of the clause. It is not so much a policy issue as an accounting issue, as I shall explain. There is a residual amount of money of around £7 million from national savings stamps that have not been redeemed and also gift tokens. The former were first issued in 1917 and withdrawn in 1976 and gift tokens were introduced in 1947 and withdrawn in 1989. Those were managed by the Commissioners for the Reduction of the National Debt. The proposal is simply to give us a power to make regulation to provide for the transfer of funds held by the commissioners in those two examples to the national loans fund. There is no economic impact, but it is a sensible policy for a number of reasons.
First, the National Audit Office has rightly expressed concerns on the security and access controls of such out-of-date systems. We wish to develop a new National Savings and Investments residual account as the single secure repository for all funds remaining in such closed products where National Savings and Investments has not been able to make payment to its customers. We also want through that new product to make sure that we provide equality of interest rate treatment on all closed product holdings in line with the Financial Services Authority guidelines for treating customers fairly, which were not in operation when the initial products were developed.

Philip Hammond: I saw that point in the explanatory notes but, as I recall, national savings stamps did not bear any interest. They were non-interest bearing instruments, so what does equality of treatment in terms of interest mean? As I understand it, neither of those two products was interest-bearing.

Kitty Ussher: My understanding is that that is correct but, since those products were issued, National Savings and Investments has voluntarily adopted the banking code and advertising standards code and moved from having its own adjudicator to using the Financial Ombudsman Service to deal with customer complaints. It is working to comply on a voluntary basis with relevant FSA regulations. It would be more appropriate to review all those products.
I will answer the hon. Gentleman’s points in general terms. We feel that it would be better to set up a residual account to look at all these issues in the light of National Savings and Investments’ correct commitment to look at them alongside the new guidelines developed in that area.
The hon. Gentleman made points which I am now advised are outside the scope of this discussion.

Philip Hammond: I take your guidance, Sir Nicholas, that it would be improper for the Minister to refer to another Bill but what I asked her was why the Government do not consider it appropriate to treat these residual stranded assets in National Savings and Investments in the same way that they are proposing to treat similar assets in banks and building societies?
I am sorry to press the point but it is not good enough to have Ministers saying the reason we are doing this is because of equality of treatment with regard to interest and then when it is pointed out that the products in question do not bear interest not to have an explanation as to why they are proceeding in this way. Surely the code to which the Minister referred, admirable as I am sure it is, cannot have any relevance to a product that has no interest payable on it.

Nicholas Winterton: If I can help the Committee and perhaps give the Minister a little time to sort out an answer for the hon. Gentleman, this clause is not about stranded assets. That is my advice and I believe it is correct. Perhaps the Minister will seek to respond to the hon. Gentleman as far as the question relates to this clause.

Kitty Ussher: Thank you, as ever, for your clarification, Sir Nicholas. It does of course relate to assets held by National Savings and Investments as a result of the savings schemes which have not been claimed. We are not discussing what they should be spent on, which will come under future legislation. It is simply an accounting change. It moves them from one bit of the Government estate, to use that phrase broadly, to the national loans fund. It updates, modernises and consolidates such pots within the national loans fund, as opposed to their being administered by the Commissioners for the Reduction of National Debt, which tends to involve portfolio management services. I hope that that provides clarification. I seem to have caused some discussion among my advisers regarding the hon. Gentleman’s point about the interest rate, so perhaps he will permit me to write to the Committee at a later date.

Philip Hammond: I will pay those who are not in the room the compliment of saying that none of them looks old enough to remember national saving stamps, so they might not know off hand whether they bore interest or not.
The Minister has not addressed the question of what ultimately happens to the money. I accept that this is an accounting transfer and I had hoped that she would have felt able to explain what the ultimate treatment would be. I am advised by my hon. Friend the Member for Fareham, who has been closely involved with the other Bill, which we shall not mention, that national savings are not included within it. If I may say so, I think the Minister is being a tad disingenuous in suggesting that this has nothing to do with that issue, because it is still unclear to us why national savings are treated differently. If it is more appropriate, I am happy for my hon. Friend to pursue that question when that other Bill, in due course, comes before the House.

Question put and agreed to.

Clause 157 ordered to stand part of the Bill.

Clause 158

EU emissions trading: criminal offences

Question proposed, That the clause stand part of the Bill.

Philip Hammond: It is perhaps unusual to have something so controversial so near the chronological end of a Bill of such a size, although, of course, we still have to deal with clauses that have been taken out of chronological order. Unless the Minister gives us some concrete assurances on this issue, we could have the last vote that we need to press in the chronological sequence of the Bill’s text.
The clause enables the Treasury to create, by regulation, criminal offences in relation to the allocation for payment of EU emissions trading scheme allowances. The background to the measure is that, in August 2006, the UK submitted to the European Commission its national allocation plan for phase 2 of the EU emissions trading scheme, which runs from 2008 to 2012. That plan sets out the basis by which allowances are allocated by the Government to firms participating in the scheme. The national allocation plan committed the Government to allocating 93 per cent. of the total available without charge, and to auctioning 7 per cent. The scheme is expected to continue after 2012 with a third phase, and I understand that the Government would like a higher level of auctioning in future allocation rounds.
The Government apparently envisage the need for provisions to create criminal offences relating to wrongful disclosure of confidential information in allocations for payment—that is, I assume, the disclosure of bid information at auctions. One is bound to ask, “Why now?” We are amending a provision that was passed only in the Finance Act 2007. What has changed in the meantime to lead the Government to think that criminal offences are required when they were not introduced in the 2007 Act or the draft regulations published under it? On the surface, this might seem like a tidying-up exercise, and the tucking away of the clause at the end of the Bill tends to reinforce that view. However, we know that we always have to read the small print, and we are 100 per cent. with the Government about trying to ensure that the emissions trading process operates well and that the allocation mechanism is effective.
Leaving aside the incompetence issue—why the Government are doing this now when the principal legislation was passed only last year—the clause actually gives rise to serious concerns of principle. How can it be acceptable for the Treasury to be given powers to create, by statutory instrument, a new category of criminal offence?
The explanatory notes talk in terms of a quite narrow category of offence:
“wrongful disclosure of...information in allocations for payment.”
However, that is not reflected in the open-ended power in the clause that we are being asked to consider. The Financial Secretary circulated a note to members of the Committee in which she said that the Government “currently intends” to use this power for an offence of wrongful disclosure. However, she very pointedly did not rule out using the power to create other offences. Nothing in the Bill limits the use of the power to the creation of an offence of wrongful disclosure.
The only limitation on the power to create new offences by statutory instrument relates to the maximum penalty that could be imposed in respect of such offences, which is the maximum penalty set out in the European Communities Act 1972. Incidentally, it would be interesting if the Minister could tell the Committee what those maximum penalties are. Are they turnover-related penalties?
Why does the wording of the clause not reflect the narrow category of offence that the Government are apparently envisaging? I do not want to sound too pompous or parliamentarian about this, but it really is not good enough for the Government to come along with enabling clauses in a Finance Bill that allow the creation of new criminal offences by statutory instrument.
Much as we have all appreciated the Financial Secretary’s guidance in the now significant number of letters and notes to members of the Committee during our consideration of the Bill, that does not limit in any way the Government’s ability to use the provision to create new offences at a later stage. We have, in fact, a catch-all clause, and there is no excuse for Parliament to sanction granting the Government such wide new powers to create new classes of criminal offence.
I have not been able to identify any safeguards, and we do need assurances about the provision’s scope. If the Minister reads into the record at this stage of the Bill’s progress that these powers will be used only in respect of offences related to unauthorised disclosure, we might be satisfied. However, we must have a clear commitment that these powers will be used in only that way. Perhaps the Government will be able to tell us that they are confident that they do not need to use these powers any more widely, in which case I will ask them to consider whether they could bring forward an amendment on Report to limit the scope of the powers to only the disclosure of information. If they do not do that, we will certainly want to do so.
Before I ask a question about the draft regulations, I draw my hon. Friends’ attention to the fact that the clause covers offences committed by not only companies—those in the marketplace will mainly be corporate players—but officers of companies or members of partnerships, including limited liability partnerships. Therefore, individuals could find themselves on the receiving end of this provision.
I have to admit to being slightly perplexed by the draft regulations that have been circulated. The Financial Secretary was kind enough to circulate draft emissions trading scheme regulations for 2008, which I take it have not been laid—I cannot find any record of them having been laid. We also have in front of us draft regulations amending those draft regulations. Why have the Government not simply withdrawn, or not laid, the initial draft regulations and incorporated into them the provisions of the second draft regulations? Instead, they have tabled the second draft regulations, which say:
“These Regulations may be cited as the Community Emissions Trading Scheme (Allocation of Allowances for Payment) Regulations”
and they go on to amend the first draft regulations.
I do not know of a precedent for presenting a statutory instrument, even in draft form, that amends an existing draft. Surely it would be more sensible—I will be very happy if the Minister is able to say that she will do this—to take both drafts away so that before the principal regulations are laid before the House, the provisions of the amending draft regulations are incorporated so that we have to deal with a single measure. Otherwise, as I understand it, the first substantive draft will be laid before the House and go through all the processes to become regulations, and immediately thereafter the Government will have to lay the second draft regulations to amend the first regulations. If it would help the Minister, I can probably find something else to say for a few moments—[Interruption.] I am trying to help the Committee.

Peter Bone: Since I have served on the Joint Committee on Statutory Instruments, I have never seen such a procedure. Such a measure would normally be withdrawn, so I think that we do need clarification on that point.

Philip Hammond: My hon. Friend reinforces my point. I have been a Member for only 11 years but I have never seen such a procedure. I was completely startled by it, so I look forward to the Minister’s clarification.

Angela Eagle: The hon. Member for Runnymede and Weybridge implied that this was somehow a hidden clause. It is in the miscellaneous part of the Bill simply because there is not a large amount of the Finance Bill taken up with emissions trading at the moment, so it fitted in the miscellaneous section. Miscellaneous does not always mean not important. I suspect that the clause is towards the end of the Bill partly because of the novelty of the area that we are in. Finance Bills have been going on for years and have taken on particular forms, but emissions trading has not been going on for years. It is a new and developing area of Government policy both domestically and at EU level—and, soon, internationally. Given that emissions trading and the issues surrounding it, particularly when it comes to raising revenue, are relatively novel arrivals on the scene, I suspect that hon. Members on both sides of the Committee will have to get used to the evolution of this particular area of activity, because it is set to grow in importance in the future. Part of the issue with which we are dealing is the novelty of the circumstances that we are in. We are trying to design regulations and legislation for a trading system that is in the middle of developing and of being negotiated, so there has to be a certain amount of flexibility as the process develops.
This clause will amend the legislative framework for EU ETS auctions with regard to the creation of criminal offences for the wrongful disclosure of confidential information relating to bids. The Government will create the offence through secondary legislation. As the hon. Gentleman rightly said, draft regulations were sent to Committee members to assist today’s debate.
The EU ETS was established with a strong lead from the UK, and it is the world’s most significant international emissions trading scheme. It is an important step towards establishing a price for carbon, with a view to ensuring that negative externalities are reflected in investment and consumption decisions. As the hon. Gentleman pointed out, the UK’s national allocation plan for phase 2 of the EU ETS set out the Government’s intention to auction 7 per cent. of UK emissions allowances. As set out in the UK Government’s vision for emissions trading, published on 30 October 2006, greater use of auctioning will help to strengthen the long-term integrity and efficiency of the EU ETS. It is essential to ensure that the auctions of EU emissions trading scheme allowances are robust and support the integrity of the scheme and the carbon market. It is essential to avoid windfall profits for power generators, which tend to make windfall profits if they do not have to pay for emissions. That is partly because we are trying to put in place a scheme in circumstances in which power generation has been going on before carbon trading or carbon prices were important. Those circumstances may not be ideal, but that is another novel part of what we have to do.
The hon. Gentleman is right that it is unusual to introduce criminal offences in this way, but it is not unprecedented. There are precedents for introducing criminal offences in the Finance Bill and in secondary legislation. The Finance Bill precedent is schedule 22 to the Finance Act 2000, which introduced such criminal offences with respect to the tonnage tax.

Philip Hammond: I am not sure whether the hon. Lady is saying that the Finance Act 2000 introduced criminal offences or the power to make criminal offences by statutory instrument. Will she clarify the position?

Angela Eagle: The 2000 Act introduced the power to make criminal offences in secondary legislation, and that is the precedent for which the hon. Gentleman asked. That is not a usual thing to do, but it is not unprecedented in Finance Bills. There are precedents for introducing criminal offences by secondary legislation, which the hon. Gentleman should take into account, including section 47 of the Transport Act 2000 and section 468 of the Companies Act 2006. There are also precedents for introducing criminal offences for inappropriate disclosure of information, which is what we are dealing with, such as section 206 of the Water Industry Act 1991 and section 393 of the Communications Act 2003. A more recent precedent that more of us will remember is section 39 of the Statistics and Registration Service Act 2007. There are therefore precedents for the measure, which is unusual, but it is not unheard of.

Peter Bone: I am grateful to the Exchequer Secretary for those examples. Do any of them apply to EU-wide provisions? What discussions have we had with our European colleagues to ensure that the penalties for disclosure are the same across the EU?

Angela Eagle: My understanding is that that is why the penalties for disclosure quote the EU legislation, which the hon. Member for Runnymede and Weybridge pointed out in his comments on the clause. As for the size of the penalties, I understand that the maximum allowed at the moment is a £5,000 fine, so we are not talking about huge amounts of money.
I want, however, to make the case for introducing criminal offences for the inappropriate disclosure of information. The auctioning of emissions and the robust nature of the carbon price will rely on confidentiality in respect of information in bids, especially if agents are used. The auctions are designed to allow the use of agents and intermediaries, and it is important, if the carbon price is not to be compromised or destabilised by the inappropriate disclosure of information, to introduce criminal offences, which act as effective deterrents to destabilising behaviour.

Philip Hammond: I do not disagree, but the Minister could have reassured the Committee hugely and avoided this debate if the clause had referred narrowly to the creation by statutory instrument of criminal offences related to the disclosure of confidential information. The purpose would then have been clear and narrowly defined. Whatever she tells us today, I have not yet heard a clear statement from the Government Dispatch Box that the legislation will not be used to create offences other than those relating to disclosure of confidential information.

Angela Eagle: It is important to say that the auctioning of emissions allowances is novel, and that the framework needs to be flexible to allow the Government to learn from experience. I am not in a position to say that the measure will not be extended into other areas, but the issue about which we are most concerned is the inappropriate disclosure of information. Given that the situation is evolving, it is important not to cut off attempts to put flexibility into the Bill so that we can evolve structures as our understanding of how the markets work and what would destabilise them evolves.
The Government will clearly not do outrageous or unreasonable things, and the law requires that measures must be reasonable. The hon. Gentleman should take some comfort from that. At this stage in a fast-moving situation, I am reluctant to close down the Government’s options so that we have to keep coming back to primary legislation. Things move quickly, and measures will be subject, too, to multilateral negotiations at the EU and international levels.
Nobody has auctioned carbon or carbon permits before in that manner, and we are developing our approach and policy as we go along. We think that it is important that the carbon market should be robust and liquid, and that it should not be subject to the risk of being laid low by the behaviour of people wishing to profit from the inappropriate disclosure of confidential information. That might well have other detrimental effects from a wider public policy view.
I agree that we are in a rather odd situation with the statutory instruments—the hon. Member for Runnymede and Weybridge was right to point that out. The main regulations for auctioning permits were laid on 3 June. They set a flexible framework to accommodate a number of different auction designs, because we had not made final policy commitments to a design. However, we have set a deadline for the first UK Government auction by the end of the year, so we want to signal how we will proceed to those who are ready and willing to involve themselves in the first auction of permits some time this year. At the moment, the main regulations for auctioning, which were laid on 3 June, deliberately set a flexible framework to accommodate a number of different auction designs.

Philip Hammond: I am grateful to the Minister for that clarification. I have to say that my search—I should say my researcher’s search—this morning did not turn up the fact that they had been laid, and the copy that has been circulated is a draft copy without a statutory instrument number. Has it occurred to the Minister that people’s willingness to participate in the process might be affected by the knowledge that another statutory instrument will be introduced that will create criminal offences that could apply to them personally?

Angela Eagle: I expect that they might be put off engaging in the auction if they intended to leak inappropriate and commercially confidential information. However, most of the people whom I have met to discuss the design of auctions and approaches to them do not intend to do that. I believe that those who want to become involved in the auctions, at least the vast majority of them, do not intend to do so by cheating. I have not heard it said that it would put them off. Emissions trading is novel. The Government must be able to respond to the experiences of those people and of the market. Any new offences created by the regulation—there may not be any—would be considered by Parliament. We would not just be writing them in Her Majesty’s Treasury.

Philip Hammond: The Minister says that there may not be any new offences, but a draft has been circulated. Unless the Government manage to lose their majority in the statutory instrument Committee that considers the matter, she surely is not signalling that it is not their intention to proceed along the lines of that draft.

Angela Eagle: No—the hon. Gentleman may not be a lawyer, but he is taking me very literally.
The hon. Gentleman spoke earlier about further extensions, and I tried to reassure him. The clause seeks, through secondary legislation, to make it a criminal offence inappropriately to disclose information that might destabilise the carbon market or compromise an auction unfairly, which may also lead to profit being acquired in a way that no one in Committee would approve. That is the behaviour that we are trying to prevent. The Government clearly intend to use regulations to make it a criminal offence to compromise an auction by the inappropriate release of confidential information. I hope that that is clear.
The hon. Gentleman is worried about widening the range of criminal offences. We may not wish to widen them, but given the novel nature of the process, and the fact that it is a new market in an area of which we have little experience, we have finally to decide on the form that the auction should take. By definition, it is in the public interest for us to be as flexible as possible and not to close our options too early, and we have a legislative system that does not easily allow us to do so. Parliament would have to consider any further extensions. I suspect that it will not have to do so, but I hope that I have reassured the hon. Gentleman about our intentions.

Philip Hammond: I am grateful to the Minister for clearing up the issue over the two draft regulations. I shall go back and check why it was not possible this morning to establish that the first set of regulations had been laid.
The Minister argues for flexibility. I am sure that Henry VIII would have argued for flexibility, and the Government, particularly on Treasury matters, have quite a lot of legislative flexibility. The Finance Bill has high priority, and it takes precedence in the legislative timetable. The longest that a Government could ever wait to cast legislation on the subject is one year. No other Department can be as confident. I am afraid that I take a rather old-fashioned view, despite the fact that I accept at face value the Exchequer Secretary’s clear assertion she is concerned about disclosure. The clause allows the creation of offences in any area. I remain firmly of the view that the creation of criminal offences is the stuff of primary legislation. Notwithstanding the relatively limited number of examples that she gave, all but one of which were enacted by this Government, we should not cede to the Government the power to create new criminal offences by statutory instrument, certainly not when they are ill-defined. If it was simply a question of offences on disclosure, and if the Government had given us a clear indication of what they were doing, the situation might be different. However, the Exchequer Secretary has been unable to give us the reassurance that we seek, so I will press to a Division.

Question put, That the clause stand part of the Bill.

The Committee divided: Ayes 16, Noes 10.

Question accordingly agreed to.

Clause 158 ordered to stand part of the Bill.

Clause 22

Periods of residence

Jeremy Browne: I beg to move amendment No. 47, in clause 22, page 12, line 4, at end insert—
‘(1C) Subsection (1) does not apply to an individual who is enrolled in a higher education institution in the United Kingdom.’.

Nicholas Winterton: With this it will be convenient to discuss amendment No. 48, in schedule 7, page 153, line 19, at end insert
‘(excluding each year the individual was enrolled in full-time higher education in the UK)’.

Jeremy Browne: Good afternoon, Sir Nicholas—[Interruption.] Indeed, the room is emptying. I thought that the Conservative spokesman was going to resign his seat as a matter of principle on the last clause, but we had to content ourselves with a mere Division.
The purpose of Amendments Nos. 47 and 48 is to exempt students from the Government’s new definition of residents. It may assist the Committee if I explain how the amendments seek to achieve that. The Russell group, which consists of about 25 of the leading universities in the United Kingdom, has provided me with background information, which the Committee may find useful. It explains the scale of overseas students’ contribution to higher education in this country. In 2006-07, there were 239,210 non-EU students studying in the United Kingdom—almost 250,000—and 112,260 EU students. International students’ fees amount to £1.5 billion a year, which is a sizeable amount of money. About 15 per cent. of students at Russell group universities are from overseas, but some universities have a much higher proportion. The London School of Economics derives one third of its total income from overseas students’ fees.
In 2005-06, the most recent year for which numbers are available, there were 31,477 overseas academics teaching at UK universities. Higher education in this country is extremely diverse. We operate in an international marketplace and many of our universities have partnership arrangements with universities in countries such as China and Malaysia. We cannot divorce the issue of students from that wider international set of considerations.

Stephen Pound: It will come as a considerable surprise, not just to the Committee but to anybody who knows me, to learn that I am a graduate of the London School of Economics. I take the hon. Gentleman’s point, but the amendment does not refer to an individual who is enrolled in a Russell group higher education institution; it refers to “a higher education institution”. We must bear in mind the vast number of highly suspect bucket shops, which exist the length and breadth of this land, that call themselves higher education institutions, frequently to allow people to avoid immigration regulations. Would the hon. Gentleman consider tightening the wording to the elitist definition that he and the Liberal Democrats have used, or would he spread the measure far and wide?

Jeremy Browne: I think that I am grateful to the hon. Gentleman. I am very pleased to say that I attended a Russell group university as an undergraduate. I shall only observe that every hon. Member becomes rather less snobby in this regard when a new institution is proposed for their constituency. I would not wish the definition to be drawn too narrowly. The figures that I gave were relevant to the UK higher education sector as a whole—they were merely provided to me by a representative of the Russell group.
Amendment No. 47 is a minor amendment and would insert new subsection (1C ) into the clause, with intention of expressly excluding foreign students enrolled in UK higher education institutions from liability for the 183-day test for residency. There is some HMRC guidance on the matter, but it is not legislation.

Greg Hands: I am sympathetic to the hon. Gentleman’s argument. How much potential might there be for people trying to avoid taxation by signing up to additional courses? Let us take the example of bankers in London who decide to sign up to an evening course, which might be at an institute of higher education and might be linked to their jobs and justifiable to their employers, but who would then, seemingly, be exempt from taxation.

Jeremy Browne: I am genuinely grateful for that contribution. My honest answer is that there probably is scope for abuse and the Government would need to consider how they framed the legislation carefully to try and prevent it. If the Exchequer Secretary were to get to her feet and suggest that the intentions behind my amendments were honourable and that she agreed with them but that the Government needed to produce more watertight versions, I would regard that as considerable progress.
I say that because the current proposal is for a seven-year threshold before the £30,000 levy kicks in for people who are non-domiciled and working in this country. Longer courses such as medicine, engineering and other vocational courses may in themselves last five or six years. For example, people who come here to study medicine—that is increasingly common—do a five-year course and are then fully qualified doctors. There are then shortages in the national health service in the area in which they have specialised, they apply for a job and make an important contribution to the well-being of our citizens. However, they already have five of the seven years on the clock. That is a serious disincentive to continue to serve people in the national health service for more than a year or two, before they choose to go home or to another country.
We are talking about a fluid marketplace and somebody with such skills and qualifications may be able to find alternative employment in another country. They have already demonstrated a willingness to travel by being in the UK in the first place. There is a danger that that person’s skills will be lost to our country and there will be no mutual benefit. There is also a perhaps even greater danger, which is that the potential student sitting in their country of origin and considering where to do their higher education course, would look at Britain and consider the incentive to study here as less strong than it was, because they will fall foul of this test if they choose to work here after gaining their qualification, and as a result be much poorer. The purpose of amendments Nos. 47 and 48 is to address that serious point.
The hon. Member for Wirral, South and I were part of an extremely informative delegation to China about three weeks ago. We visited a joint university venture with the university of Liverpool, and had a meeting with a representative of the university of Nottingham which has three campuses, one in Nottingham, one in Malaysia and one in China. That is indicative of the desire of higher education institutions in the United Kingdom to operate on a global stage, and to attract the best-qualified students and potential students from across the board, particularly in the disciplines that I mentioned such as science and engineering. We do not want to put that international leadership and the reputation that British universities enjoy at risk.

Stephen Pound: On the subject of a fluid economy, the record holder in my constituency is a student who came here 14 years ago to study hospitality and catering and is still studying. She is legally here by constantly renewing her student visa. The hon. Gentleman is talking about a specific group of people. At present, overseas students cannot work for more than 16 hours a week if they are here on a student visa. Would his amendment make an enormous difference, or is it—I hesitate to say it—perhaps a little too loosely drawn?

Jeremy Browne: I have already conceded that I did not anticipate that the Committee would support my amendment. I do not think that the Government have supported a single non-Government amendment yet. Actually, I think that there was one. However, I was keen to make the points and it would be to the good if the Government chose to accept the amendment. If the Government concede the thrust of the argument, I would regard it as significant progress.

Greg Hands: The hon. Gentleman makes an interesting case. It seems that there is a good chance that that sort of overseas student, especially if they go back to their country of origin or any other country, could earn more than £2,000 during that year. They would therefore be caught under these regulations, in my understanding.

Jeremy Browne: Mine, too. We will get on to a greater deliberation of these matters, I anticipate, under schedule 7. However, this is important, because we are talking about £1.5 billion of income to British universities per year. There are large numbers of British universities now that would not function in their current, recognisable form without that. Indeed, it is an under-appreciated fact among domestic students that a lot of the activities of British universities are effectively subsidised by the fees of overseas students. We do not wish to put that revenue at risk, and that is the fear I am touching upon.
Before I conclude, it is relevant to, but not directly encapsulated in the amendment, that I received a representation from the City of London. I will just quote two sentences from its letter to me:
“Although it is not dealt with in your amendment, it is apparent from the Bill as currently drafted that a non-domiciled child who turns 18 by the end of the tax year, 5th April, and has then been resident for at least 7 of the past 9 years, will be required to pay the charge in full on the same basis as any other adult non-domicile. Thus a sixth-former who turns 18 before 5 April of his or her final year at school could attract the charge.”
It would be very interesting to hear the Minister’s response to that point.
I have made the specific point that there is a big market in higher education for attracting overseas students to this country, and of course they make a big contribution by enriching our institutions in ways beyond the merely financial. However, there is also, particularly with relation to independent schools, an important market in attracting students from elsewhere—or more specifically their parents—because of the high reputation that British independent schools enjoy in many parts of the globe. That too is an important feature of their income, so we would not wish to jeopardise that either.

Ben Chapman: Has the hon. Gentleman been able to put any figures to the suggestion that students may not come or may not stay in the United Kingdom? These students are often paying their own way, and are not on scholarships. They often have wealthy parents and make not just a contribution to the university, but a considerable contribution to the UK economy, both locally and more widely.

Jeremy Browne: I have not made an estimate of the potential losses. It would be hard to do so, because people come from so many different parts of the world, for different reasons and motivations. I just observe that they are trying to make rational decisions about their prospects, both educationally and economically, and that these matters are one factor that they surely take into account before embarking on an expensive course on the other side of the world. I do not doubt for one moment that there would be a damaging impact, although I do not know on what scale.

Peter Bone: I am grateful for the hon. Gentleman’s points. I remember when I was on the former Trade and Industry Committee, there was an inquiry and we were very concerned about the fact that other countries were more successful than us at getting students and that we were declining in relative terms. The detail of this proposal does not matter too much, but, if it gets around that students who go to the United Kingdom will be hit heavily for tax, they will not come, will they?

Jeremy Browne: That is precisely my fear. I am generalising, inevitably, but students coming to this country take into account a range of factors. There are some British educational institutions—most notably Oxford and Cambridge universities—that enjoy a worldwide reputation for excellence. Being in a country where the main language spoken is English is no doubt attractive to many people, so there are also factors beyond the immediate control of the Government. No doubt, one of the calculations in the minds of the potential students is a financial one. That is quite right, because they pay hefty fees to attend British universities and one would expect them to make such a calculation.

Stewart Hosie: The hon. Gentleman will be aware that, some years ago, the Fresh Talent initiative in Scotland allowed graduate students from overseas to stay in work for two years, something which has now been undertaken in the whole of the UK. Do measures such as this risk undermining the potential of those initiatives to grow the population and keep skilled people who have been educated here? Does he agree that instead of using the word “enrolled”, his amendment should have specified being engaged in full-time education, as his new clause 5 did, and also in part-time education up to a minimum number of hours? I am sympathetic to the argument but not sure that the wording is as tight as it might have been.

Jeremy Browne: I am grateful for that intervention because I am willing to concede that my skills do not lie entirely in the area of drafting Parliamentary amendments. Others can conclude where they do lie. I hope that this has been a useful debate for the Committee. It would be helpful to have the Minister’s response to the amendments about the status of students in higher education. It would also help if she could respond to the point raised with me by Mr. Double from the City of London about whether the clock starts ticking on overseas residents who are in school-level education but turn 18 in the last year of their sixth form before 5 April and whether that entire period they have spent in school—not just the last few weeks before they do their A-levels—counts towards the regulations that the Government are bringing in. If so, that would obviously have a very damaging impact on school-level institutions that attract overseas students.

Nicholas Winterton: Before I call the Opposition spokesman, may I say to the Committee that I understand from the usual channels that they would like to adjourn consideration at 7 o’clock. There is, of course, a vote at 7 o’clock. I can only express the hope that those who are speaking can so order their comments that the Government Whip can rise in order to move that further consideration be now adjourned, otherwise it will be necessary to come back after the Division at 7 o’clock. If it has been agreed through the usual channels that the Committee wishes to adjourn, I would ask Members to note what must be done.

Mark Hoban: May I say what a pleasure it is to serve under your chairmanship at this late hour of this afternoon’s proceedings, Sir Nicholas?
Lest any Member doubt the fact that the hon. Member for Ealing, North is a graduate of the LSE, let me assure them that in my first year there, he was the general secretary of the students union. One of us appears to have aged better than the other but I remember him fondly from those days. I also assure the Committee that nothing has changed in the 20-plus years since we were at the LSE.
I am not going to go over points made by the hon. Member for Taunton about the contribution of the higher education sector to the UK economy. It plays a significant role and makes a major contribution in subsidising the costs of UK students. We should acknowledge that.
Another issue in connection with students in full-time higher education has been raised by a number of people in the City of London. I am not sure whether it has been raised by the corporation itself, but it has been raised by other bodies in the City. It was also debated in the House of Lords Economic Affairs Sub-Committee on the Finance Bill. Ian Menzies-Conacher said in his evidence to the Sub-Committee:
“The simple thing is we would like to see time spent in full time education simply disregarded in terms of calculating the seven years. Our problem is that we would like to recruit non-residents—Chinese, Indians—for obvious reasons...by the time they have been educated in a UK university with an MBA they are starting to approach the end of the seven years before we have even got them on board.”
The same point was made to me not only by the British Bankers Association but by the London Investment Banking Association. It is one of the strengths of London and the financial services sector that they draw on a pool of talent, some of which comes from UK universities in the form of non-doms who could be deemed to have been resident for the duration of their course. If they have already spent three years on a degree and a couple of years on a master’s and qualified under the rules that we discussed in schedule 7, they may be approaching the seven-year point at which they will have to decide whether to be taxed on an arising basis or to enjoy the remittance basis and pay the £30,000. That is an interesting argument, but there are some problems with it. We need to understand why that group deserves exemption when other groups might not. If it is because of their economic contribution, there may be cases to be argued for other groups, such as international bankers. Should they be exempted?

Jeremy Browne: Full-time students on the five-year course that the hon. Gentleman described would not be earning money during that time, apart from pocket money, possibly, on the side. That is an important consideration that would not apply to the other example.

Mark Hoban: It depends. We need to be careful. I will be interested to hear the Minister’s response, because the issue raises questions about who would qualify. They may well have remittances from overseas that would start that seven-year clock ticking, but my point is that if we exempt students on the basis of their future economic contribution, should we exempt international bankers as well? I do not think that it is anyone’s intention to do so.
If it is an exemption for study, why restrict it to higher education? I know from my own experience that it takes a minimum of three years to qualify as a chartered accountant. Only after someone has qualified can they maximise their potential benefit to the firm employing them. Should their seven years start when they qualify? What about lawyers? I think that it takes five years to qualify as a lawyer. I am not a lawyer myself but a chartered accountant, so I cannot say with the same degree of certainty, but becoming a lawyer involves a law degree, a year of law school and a year in articles. At what point should the seven years start? If we are going to consider exemptions, we need to be clear what grounds they are based on. I do not think that it is clear at the moment.
I point out to the hon. Member for Taunton, who has accepted that draftmanship is not his reason for being in Parliament, that even his two amendments that we are discussing have different wordings, which would have an impact. Amendment No. 47 says:
“Subsection (1) does not apply to an individual who is enrolled in a higher education institution in the United Kingdom.’.”
Far be it from me to suggest how people might take advantage of tax rules, but I can imagine all non-dom London employees of Goldman Sachs suddenly enrolling in higher education institutions.
Even his amendment No. 48, which says
“was enrolled in full-time higher education”
does not address the issue of engagement and being on the course. I recognise the arguments that have been made for the exemption for students in higher education, but I am not sure how we could tighten the wording to reduce misuse. It is quite a challenge to get that right. This issue has been raised not just by the Russell group, but by the financial services sector. All will be listening carefully to the Financial Secretary’s response.

Jane Kennedy: It has already been suggested that the amendments might be described as loosely worded. They are technically deficient, largely for the reasons described by the hon. Member for Fareham. They are also absolutely unnecessary. The day-counting mechanism in clause 22 applies only to determining whether somebody who is not a UK resident should be treated as resident for tax purposes. It does not arise for students because the vast majority of higher education students live in the UK full time during their course. They are therefore tax resident from the moment they arrive. The day-counting process is simply irrelevant to their circumstances. They will be completely unaffected by the changes in clause 22.
As for the remainder, it is not clear that there is a material issue to be dealt with. Everybody remains exempt from the £30,000 charge while they are under 18. A first degree lasting three or four years will not be enough to trigger the new seven-years-out-of-10 test that controls the application of the £30,000 remittance basis charge. We accept that it is right to exempt children, but the counting starts from the moment of arrival of a non-domicile who comes to be resident in the UK. The hon. Member for Taunton is right in the description that the City raised with him that a child who arrives at the age of 5 will become liable for the charge on turning 18 if they opt to use the remittance basis. That goes to the nub of the debate.
There was political agreement across the House that the remittance basis needed to be reformed. There were clear differences about how we should do that. I believe that we have brought forward a set of changes that make necessary improvements to the regime to close loopholes that were widely regarded as being abused to a high degree. At the same time, we have not imposed a charge immediately on someone’s arrival, which is what the party of the hon. Member for Fareham proposed. That was clearly anti-competitive.
If a person turning 18 decided to use the remittance basis, it would be because they had access to offshore funds totalling in excess of £1.6 million. Such people may be doing a Saturday job, but it would not be in the same context that my children would be working on a Saturday. My children would be doing so because I had insisted that they go out and earn their own keep to a certain extent. It is wrong to paint the picture that there are hundreds, possibly thousands, of students coming to the UK who may be affected by this measure. That is not the case. It is also important to remember that under many double taxation agreements, money brought into the UK to support somebody’s studies is not taxable. The only students who would be opting for the remittance basis would be those who had been in the UK for a long time and had considerable offshore income that they can afford to leave outside the UK.
It is pointless reiterating this point. I have explained broadly why I think that the amendments are completely unnecessary. I will give way because I wish to make one or two points before I finish.

Mark Hoban: The Financial Secretary referred to the exemptions that appear under double tax treaties where funds are brought into the country for somebody to live on. Is she saying that where there is a conflict between a double tax treaty and the rules around residence and domicile, the double tax treaty will override the rules on residence and domicile?

Jane Kennedy: It will depend on the terms of the double-taxation treaty and on the circumstances of the individual, but I anticipate there will be few occasions when there will be conflicts of this nature. I did want to respond to the point that the hon. Members for Fareham and for Taunton both raised about the fears that some big employers in the City had about recruiting and retaining some of the excellent students who come from abroad to train here and may in the course of their studies come close to the seven years. It would be wrong to start making exemptions in that case, just as it would be virtually impossible to start making exemptions for the banker described by the hon. Member for Fareham, or an industrialist who may have been here for some time, involved in one of our big multinational corporations. To make that sort of exemption is quite wrong. If we have what we are now providing—a fair system that is far less complicated than it used to be, but none the less addresses the concerns that were being raised among citizens of the UK who did not have access to the remittance basis about the fairness of the loopholes that were undermining the system—then we have something that will work. It is clearer—I am not saying that it is the clearest piece of legislation ever, but it is much clearer than it was.

Jeremy Browne: Can the Minister answer the question that her hon. Friend the Member for Wirral, South put to me, which is whether any estimate has been made of the financial impact on the British higher education sector of the proposals being brought forward by the Government?

Jane Kennedy: I have not asked for any specific piece of work to do that, but I am confident that the impact will be very small. If the hon. Gentleman and my hon. Friend the Member for Wirral, South wish, I can certainly inquire further, but I believe the numbers of students affected will be very small. The Russell Group, or any other institution of higher education, ought not to be concerned about the implications of this clause.

Stewart Hosie: The Minister is absolutely right in terms of those individuals who have a minimum of £1.6 million to be parked overseas, but thinking about the sort of student who may be funding themselves through university, who may have a modest remittance coming in, more than the £2,000 threshold, they would then lose all their UK tax allowance for a very small remittance coming in from overseas to help them with their university fees perhaps. Is there not a real issue for people working their own way through university with a small remittance coming from overseas, perhaps from family, to help them pay their fees, that they would then be hit by this additional taxation because their allowances would go, which they need to work their way through their studies?

Jane Kennedy: I think I can reassure the hon. Gentleman. Individuals have to make choices and a resident non-domicile does not have to use the remittance basis. They can choose not to do so, in which case they are treated as any other taxpayer in the UK. Therefore, if they were in full-time education, their income would be considered as that of any other student in the UK would be considered. As I have said, we do not have double-taxation agreements with every country in the world, but we have one of the largest, if not the largest, numbers of double-taxation agreements around the world, so the vast majority of students who come to the UK to study would be protected by the terms of their double-taxation treaty agreements.
I hope the hon. Member for Dundee, East will accept that I do not believe there is a cause for concern here. The only reason for opting to use the remittance basis and having to consider paying the charge is if one has offshore funds of £80,000 or more. With anything less than that, in the circumstances he has described, one would simply consider oneself to be here as any other taxpaying resident in the UK for tax purposes.

Jeremy Browne: I was not seeking to make another speech. I thought that was a useful discussion, and I hope the Minister will take the opportunity to keep the issue under review and ensure that there is not a damaging impact on the higher education sector within the United Kingdom. On that note, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nicholas Winterton: To ensure that there is no confusion as we approach 7 o’clock, I repeat again that it has been agreed across the Committee that we adjourn our deliberations at 7 o’clock. Whoever is on their feet—Minister or shadow spokesman—needs to resume their seat to allow the hon. Member for Waveney, the Government Whip, to move the question that further consideration be adjourned. I hope that is clear.

Mark Hoban: I beg to move amendment No. 360, in clause 22, page 12, line 40, at end add—
‘(9) The Treasury shall lay before the House of Commons by 31 December 2008 a report setting out the basis of a statutory residence rule to replace the existing rules.’.

Nicholas Winterton: With this it will be convenient to discuss the following: Clause stand part.
New clause 5—Definition of residence
‘(1) An individual is resident in the United Kingdom for income tax purposes if—
(a) during the tax year in question the individual spends (in total) more than 31 days in the United Kingdom; and
(b) during the three-year period that includes the tax year in question and the two tax years immediately preceding it the individual has spent (in total) 183 or more days in the United Kingdom, including—
(i) the total number of days spent in the United Kingdom in the tax year in question,
(ii) one-third of the days in the tax year immediately preceding the tax year referred to in sub-paragraph (i), and
(iii) one-sixth of the days in the tax year immediately preceding the tax year referred to in sub-paragraph (ii).
(2) An individual found to be resident under subsection (1) shall be liable for income tax on both their UK income and capital gains and any foreign income and capital gains remitted to the United Kingdom.
(3) In determining whether an individual fulfils the definition of residence under subsection (1) treat each day the individual is physically present in the United Kingdom as a day spent by the individual in the United Kingdom.
(4) But in determining that issue do not treat as a day spent by the individual in the United Kingdom any day on which the individual—
(a) arrives in and departs from the United Kingdom on the same day;
(b) is present in the United Kingdom for less than 24 hours for transit only;
(c) is present in the United Kingdom by virtue of being employed as a crew member of a foreign vessel;
(d) is unable to leave the United Kingdom on the same day owing to a medical condition;
(e) is enrolled in full-time higher education in the United Kingdom;
(f) is an exempt individual.
(5) The Treasury shall, by regulations, define an exempt individual.
(6) Regulations under subsection (5) shall be made by statutory instrument.
(7) A statutory instrument containing regulations under subsection (5) may not be made unless a draft of it has been laid before and approved by resolution of the House of Commons.
(8) On the coming into force of this section, Chapter 2 of ITA 2007 shall cease to have effect.’.

Mark Hoban: Thank you, Sir Nicholas, for your guidance on timing. I will endeavour to finish before 7 o’clock, hopefully at a point that does not cause the Committee any inconvenience in terms of other Members speaking.
The heart of the amendment is to probe the Government’s thinking on where they might be in terms of considering a statutory residence test. It is worth bearing in mind that while clause 22 may give the appearance of being a statutory test, it certainly is not. We have a situation where a taxpayer will know with certainty that, if they spend more than 183 days in the country in one year, or more than 91 days per year over four years, they will be residents. What they cannot be certain of is whether, if they spent fewer days, they would not for some reason be treated as resident. Unfortunately, it is not as cut and dried as that.
We are in a case law system, and case law has built up around these issues. I had a quick peek at “Halsbury’s Laws of England” in preparation for this debate. One of the cases—I think it was Reid v. Inland Revenue Commissioners, in 1926—established that even if one sells one’s house and furniture and lives in hotels in the UK, as long as one spends time in the UK annually, one could be deemed a resident. In this case, the period of time was three to four months, the bank account was in London and the personal effects were here. The fact that one does not have a property here does not necessarily mean that one is not resident. There is an example in which someone stayed in a hotel, but was deemed to be resident. There are all sorts of rules around this matter which make it quite complex.

Emily Thornberry: I am surprised to hear that the hon. Gentleman is so shocked that people can be resident without owning property. A very large number of my constituents live in Islington without owning their flats.

Mark Hoban: The point I was making was that actually the rules are not clear, and that the fact that one may not have a home in the UK does not mean to say that one is not resident in the UK if one comes to visit. In some circumstances, an individual might have a home in the UK but not be deemed resident in the UK, despite visiting frequently. If someone has an abode here, they might still be in a situation where they are not deemed resident. I have to give way to the Minister. I do not want to take up too much time. I am conscious of the hour.

Jane Kennedy: It may be helpful to the hon. Gentleman if I tell him that I am not unsympathetic to the case being made for a statutory residence test. However, there is no consensus at the moment from those groups lobbying for such a test as to what a test would look like. I have asked for work to be done to see whether one can be developed.

Mark Hoban: I knew that the Minister was sympathetic to the idea before I started. I understand that she has been engaged in discussions with advisers. I want to say why I believe that there is a strong case for a residence test, because it is important that people understand some of the issues. I shall want to raise other points on clause stand part.
Guidance produced by the Inland Revenue in IR20, which is quite a thick document, states:
“This booklet sets out the main factors that are taken into account, but we can only make a decision based on your residence status on the facts in your particular case.”
There is some uncertainty about how the rules apply. The 91-day rule has its complications. Although it is meant to have a four-year duration, those who have been in the country for an average of 91 days during the previous four years are treated as being resident from the fifth year.
However, the booklet also states that
“you are treated as resident from 6 April of the first year if it is clear when you first come to the UK that you intend making such visits and you subsequently actually carry out your intention.”
Intention is a key part of this. It is not only about whether people are resident here, it is also about what they intend to do. On that subject, there is an interaction between the clause and schedule 7.
Residence is clearly an important concept, given that it drives whether or not one is liable to pay the £30,000 charge. There is much uncertainty, and people feel that it undermines the UK’s competitiveness as a place to do business.
The UK is one of the few major countries without a statutory residence rule. Although the consultation document on residence points out that the UK has been relatively generous about the number of days that people can stay in the UK without being resident, that generosity is undermined by the fact that the rule itself is non-statutory. As a consequence, people will want to avoid inadvertently becoming resident and thus might well spend fewer days in the UK. They will want to ensure that they are well within the rules and cannot be deemed to be treated as being resident here.
That is why it is important to consider the matter, and I am grateful that the Minister gave us an assurance in her intervention. I was generous in the amendment in giving the Government until 31 December 2008 to collate the report, as it will enable the consultation to be done properly. There are different models for statutory residence tests. Both Ireland and the United States have drawn up their own tests. The hon. Member for Taunton’s amendment to new clause 5 is based on the US test, but there are others.
I wonder whether the Minister has considered whether the new test should be retrospective, or whether the Government would consider having simple transitional reliefs. The US test requires going back three years in calculating whether one has spent more than 183 days in the country. If the test was introduced now, would it apply over the past three tax years, or would it come fully into effect in three years’ time? Those are the types of issues to which the Minister has alluded, but they are difficult to resolve.
I shall not talk at length about the case, given that the Minister has indicated her desire to consider it. However, I wish to raise some points on clause stand part. First, IR20 allows a disregard on the number of days spent in the UK if the individual or a family member falls ill during a visit that requires individuals to extend their stay in the UK. Will that concession apply following the introduction of these changes? I suspect that that might fall into the category of extra-statutory concessions, a subject that was debated earlier today. It would help if the Minister were to assure us on that.
I wish also to speak about the applicability of the changes. The changes in the clause affect residents of narrowly defined areas by amending section 831 of the Income Tax Act 2007, which deals with the foreign income of individuals resident in the UK for a temporary purpose. Is it the intention that in the absence of statutory residence rules these changes will apply to all aspects of IR20? If so, when will a revised version of IR20 be ready?
Thirdly, I want to discuss the in-transit rule in the clause. Such rules were introduced because the Government decided that the day of departure and the day of arrival could no longer be excluded from the day-counting rules because of changes in international travel. They changed the rule so that when an individual was in the UK at the end of the day, that day was counted towards residence. That meant that people in transit would be covered by the rules. An international traveller spending the night at Heathrow before catching his flight the next morning to New York would find that day counting towards his days in the UK.
The Government have responded to the outcry generated by that rule with proposed new subsection (1B)(b), which states that if somebody is in transit, the day does not count towards their residence test if
“the individual does not engage in activities that are to a substantial extent unrelated to the individual’s passage through the United Kingdom.”
Helpfully, paragraph 17 of the explanatory notes on the clause tries to address what “substantial extent” means. Somebody who is in transit through the UK and attends a business meeting in Canary Wharf does engage in activities that are
“to a substantial extent unrelated”
to his passage through the UK. However, somebody who unexpectedly bumps into a colleague in the foyer of an airport hotel, has a drink with him and talks about business does not engage in such activities. The casual encounter is okay, but the formal meeting is not. I wonder whether we will see an increase in casual encounters in airport hotels as a consequence of this measure.
Some more extensive guidance on this measure might help. I gather that spending most of the day seeing one’s grandchildren who live near Gatwick while en route between Guernsey and New Zealand will not meet the test, but having a meal at an airport hotel with one’s son will meet it. I do not know whether that applies to any members of the Committee, but it is apparently an important distinction. I am not quite sure what happens if one’s grandchildren also come to eat at the airport hotel. I suppose it depends how long the meal lasts and how good the service is as to whether it passes the test.
The concession is well intentioned and it is the right way to go, but I am not sure how straightforward it is to implement. Doubtless, case law will develop along these lines. We have received one representation saying that the examples in the explanatory notes do not refer to the modern form of business in which people may communicate by computer over things like Skype, video conferencing and so on. If one participated in a video conference from a hotel in Heathrow while awaiting a flight to New York, would that be a formal meeting? That might sound rather pedantic.

Jeremy Browne: It was.

Mark Hoban: Having looked at “Halsbury’s Laws of England”, pedantry might come into play in future debates on this issue.
Finally, I go back to the issue of whether tax gains or losses will be attached to introducing the statutory residence test. As I understand it, the Treasury has said that the test in clause 22 will lead to an increase in revenue of about £50 million, with 17,000 being treated as residents and 7,000 people changing their behaviour to avoid being treated as residents. Will the Financial Secretary elaborate on the basis of those calculations? How does the Treasury determine the behavioural changes that the clause will bring about? How does it know that 17,000 people will be caught, when perhaps if they are well advised they will not be? In the debate on statutory residence—the Minister has indicated her interest in it—I would like to think that spurious calculations of losses and gains got in the way of producing a rule in the best interests of the economy as a whole.
We believe that there is a strong case for a statutory residence regime, but agree with the Financial Secretary, based on her earlier remarks, that more needs to be done to establish a set of clear, certain rules that will reduce the costs of compliance on both the taxpayer and HMRC. Taxpayers spend a lot of money on advice to determine whether they fall within the scope of the rules. If we can move away from that to a much more certain and clear system, it will strengthen Britain’s reputation as a place to do business. The best way to crystallise the Treasury’s thinking on the matter is to require it to lay a report before Parliament by 31 December 2008.

Jeremy Browne: I seek your guidance, Sir Nicholas. I appreciate the premium that the Committee puts on brevity, but I would like more than a minute or so to talk about new clause 5. With your indulgence and that of the Government Whip, I was hoping that—

Nicholas Winterton: I accept that as a point of order. Having accepted it and understood what the hon. Gentleman is saying, I look to the hon. Member for Waveney to move the adjournment motion.
Further consideration adjourned.—[Mr. Blizzard.]

Adjourned accordingly at four minutes to seven o’clock till Thursday 19 June at Nine o’clock.